Spruce Power Holding Corporation

by the number one on your telephone keypad. And if you would like to withdraw that question, again, press star one. Thank you. I would now like to turn the conference over to Bronson Flagg, Head of Investor Relations. Bronson, you may begin your conference.

Good afternoon and welcome to Spruce Power's conference call to discuss results for the first quarter of 2024. With me today are Chris Hayes, our Chief Executive Officer, and Sarah Wells, our Chief Financial Officer. Our call this afternoon will include statements to speak to the company's expectations, outlook, and predictions of the future, which are considered forward-looking statements. These forward-looking statements are subject to risk and uncertainties, many of which are beyond our control, which may cause our actual results to differ materially from those expressed in or implied by these statements. We are not obliged to revise or update any forward-looking statements, except as may be required by law. Please refer to our disclosures regarding risk factors and forward-looking statements in today's earnings release and other SEC filings. A copy of our press release has been posted to the investor relations page of our website for reference. The non-GAAP financial measures discussed in this call are reconciled to the U.S. GAAP equivalent and can be found in the press release that we issued this afternoon. With that, I will turn the call over to our CEO. Chris, go ahead.

Thank you, Bronson, and good afternoon to everyone. This is my first earnings call here at Spruce Power as Chief Executive Officer, and I'd like to say how excited I am to step into a new leadership position with the company. I have familiarity with Spruce, having served as an independent director since Spruce was acquired 18 months ago in the reverse merger with XL Fleet. More importantly, I have been active in the renewable energy industry and project development for many years, and I'm excited to apply that expertise to our vision for Spruce. As I stepped into the CEO role, I believe Spruce is in its strongest position in its corporate history. There are three main reasons. First, our core solar business is inflecting toward positive cash generation as the benefits of 2023 M&A activity and greater scale are realized. Next, Spruce has a strong balance sheet and abundant liquidity. It positions us well to take advantage of the massive investment cycle occurring upstream in residential solar markets. Last, legacy XL fleet overhang items are diminishing, allowing us to look forward to focusing on growing positive cash flows. My core near-term focus will center on driving Spruce to pursue capital light organic growth opportunities that can leverage our outstanding owner operator platform. This includes acquisitions of operating residential solar portfolios with attractive return profiles and a sharpened focus on extracting value from Spruce's best in class solar servicing technology platform. My goal is to leverage my experience in productizing several once nascent technology services businesses in renewable energy markets into businesses that today are sustainable generators of recurring revenues. I believe that Spruce's servicing technology platform is primed for optimization that can drive organic growth opportunities. I'm happy that the Board of Directors has entrusted me to unlock this value as an additional source of growth for Spruce. Spruce servicing. So, let's start there with Spruce's servicing technology platform. I want to discuss our servicing platform in more detail because it's really our, quote, secret sauce. The platform foundationally enables us to do many things well, including our ability to be the preeminent consolidator of residential solar assets, through M&A. Spruce's servicing technology platform was years in the making and today stands as a mature, fully integrated business. It was crafted to provide exceptional customer service while operating residential solar assets the most efficient manner, thus maximizing asset-level cash flows. Our full-wrapped servicing suite includes infrastructure such as, one, a billing and collections platform that enables seamless customer payment services and in-house collection activities. Two, asset operations in which we remotely monitor our rooftops and collect data and analytics, enabling us to efficiently deploy field services teams to service rooftops and keep revenues flowing. Third, homeowner support. a suite of both online tools and US-based call center agents that handle anything from basic customer questions to system transfers in a home sale process. And lastly, a suite of many other valuable services. This includes tools that use in-depth financial analysis and reporting to generate detailed records for asset owners and third-party funds on a multitude of financial and operational reporting metrics. All these systems are technology-driven, such that we can provide integrated, seamless services to both Spruce and third-party assets. The key takeaway? To our knowledge, Spruce has the most comprehensive service offering in the market. It's hard to replicate, and we believe we have created a moat in servicing. Spruce services its own solar assets as well as some third-party portfolios, a few of which are now wholly owned through acquisitions. Our platform has matured such that we can scale this servicing business to far more of those third-party portfolios. To that end, it's important to underscore our addressable market. Upstream to Spruce, we are amid a massive investment wave in residential solar and distributed energy assets. According to leading industry data sources, around 25 gigawatts of rooftop solar has been installed in the United States over the past five years. Despite the transitory challenges of policy and cost of capital volatility, the magnitude of residential solar installations ahead is compelling. We believe hundreds of thousands of homeowners will adopt solar through the end of the decade. Even more encouraging for Spruce, lease and PPA paper is becoming a preferred consumer financing choice as this paper can be more efficiently priced by originators for the consumer in this quote, higher for longer rate environment. This robust outlook creates tremendous opportunity for Spruce to offer our best-in-class servicing platform to third-party originators and, of course, the opportunity to consolidate solar portfolios over time through M&A. Why? The answer is simple. One, from a servicing perspective, we offer what we believe is the most comprehensive and price competitive service offering in the market. Our platform is purpose-built and years in the making, so we are competitively advantaged versus competing piecemeal offerings from solar originators and financing parties attempting to retain servicing, quote, in-house alongside asset ownership. Two, from an M&A perspective, history tells us that most originators are good at what they do, installing solar. Owning solar assets for 20 to 30 years is not their forte. These solar installers and their partners who look to own portfolios for either economic or tax reasons, eventually look to recycle capital for future development activities. In fact, this has been the catalyst for many of Spruce's 13 acquisitions to date. So, in these first few weeks as CEO, I've begun to present our team with a goal of creating value from this tremendous platform we have. Earlier this year, we announced the launch of Spruce Pro, which is our B2B brand for marketing our servicing technology platform to other residential solar assets, as well as commercial solar and other energy businesses. Early indication of interest for Spruce Pro and our servicing technology offering are exciting and outpacing our initial expectations. I look forward to providing more updates over the next few quarters. Next, I want to discuss our philosophy and current position around capital allocation. At quarter end, Spruce had $150 million of cash. This war chest enables us to pursue growth by acquiring residential solar portfolios and through expanding our service and customer base. Our philosophy around capital allocation has been consistent since Spruce went public via the merger. and we have no intention of changing it. Our investment decisions are driven by a rigorous analysis of opportunity cost. At any point in time, we will direct our capital to the highest return alternative. We retain maximum flexibility in deciding what to do because we can't predict in advance which alternative will be most attractively priced as market conditions are always changing. Occasionally, like this quarter, we may do nothing because our alternatives are equivalent and we expect future conditions to create better opportunities. I watched the Berkshire Annual Meeting last weekend and noted that Buffett was raising cash for this same reason. He wants to be ready for more compelling opportunities he expects in the coming quarters. We do not rush to deploy capital merely to boost our growth metrics temporarily. Instead, we emphasize patience, ensuring that when we make moves, they are both strategic and prudent. This disciplined approach means we are not swayed by short-term market trends or pressures to close deals rapidly. We can wait for our fat pitch, the right opportunity that aligns perfectly with our long-term objectives and company values. The great thing is, Bruce is paid to wait. If we do not grow our portfolio with an acquisition, we are still collecting meaningful and attractive cash flow from the assets we own. This is a stark contrast to the broader residential solar industry who must, quote, grow or die. So we have no reason to force any capital allocation moves. We can and will be patient and act only when a likely return is compelling and is the best among the alternatives we have. Before handing it off to Sarah, some final thoughts. I've enjoyed many conversations with the investment community over the past several weeks, many of you no doubt listening today. I'll echo the sentiments that I've expressed in that Spruce remains head down, executing on our core strategies. I'm excited to leverage my experience to enhance the value of our underlying servicing business, which offers us a durable, competitive advantage over the long run. Spruce is very well positioned, and I look forward to building on the momentum our team has created to date. Sarah?